Novak: Ask Obama to define “loophole”

POSTED AT 9:00 AM ON OCTOBER 2, 2008

BY ED MORRISSEY

Robert Novak makes a mockery of his retirement — thankfully — with an observation about Barack Obama and his populist rhetoric on tax policy. When John McCain pressed Obama to explain how he would pay for the hundreds of billions in new spending Obama proposes without raising taxes broadly, Obama said he would “close loopholes” to recover the revenue. Novak doesn’t think Obama can define “loophole”, at least not broadly enough to find over $300 billion a year in revenues:

How would Barack Obama pay for the $800 billion that John McCain claimed in the first presidential debate Sept. 26 in Oxford, Miss., that his Democratic opponent would spend if he were elected president? Obama replied, by “closing tax loopholes.”Obama was no more specific in the debate, and tax experts doubt that structural changes without increasing taxes can raise anything close to that amount of money. …

Obama has made clear that he would try to roll back President Bush’s tax cuts, but that does not come under the definition of a “loophole.” A loophole consists of a conniving tax attorney discovering a weakness in the Internal Revenue Code or such a weakness intentionally legislated by Congress under the instigation of crafty lobbyists. The only specific tax legislation contained in Obama’s paper would raise the capital gains rate for most shareholders, restore taxation on dividend income to pre-Bush standards and restore the full estate tax.

In other words, Obama doesn’t have a clue what “loophole” means. When he talks about closing loopholes, what he really means is that he will impose higher taxes on investments and savings as a means to soak the rich. Obama isn’t interested in closing gaps in the tax code, but in hiking the rates demanded by the code. It’s redistributionism, the kind of populist pap that won him the nomination, and which Obama hopes will win him the White House.

If Obama really wanted to end loopholes, he could have supported one of two tax plans: the Fair Tax and the Flat Tax. Both would eliminate Congress-mandated exemptions in the tax code by replacing current code altogether. The Fair Tax would eliminate income tax and replace it with a consumption tax, which would “soak the rich” as they spend their money. The Flat Tax would have everyone pay the same percentage of tax across the board, with no exemptions or deductions at all. Regardless of their other merits or deficiencies, these are the only two tax plans that eliminate actual loopholes.

Obama insists that his tax plans would only affect 5% of the electorate, but that doesn’t add up to the amount of money he wants to spend as President. The taxes on investments will hit broadly across the entire investor community, which includes 70% of American families now thanks to IRAs, 401(k)s, and such. The capital-gains tax hike Obama envisions will also hit indirectly at American families as investors will stop turning over assets in order to raise cash for new ventures — which will slow the growth of new jobs and keep more Americans unemployed. Payroll tax increases will keep businesses from expanding. The money Obama sucks out of the capital markets will go to massively inefficient government bureaucracies, rather than in efficient private-enterprise entrepeneurial pursuits.

Obama’s tax policies are a recipe for disaster, especially in an economy already teetering on the brink of a hard recession thanks to disastrous government intervention in the lending markets. Novak’s question would reveal the lack of depth Obama brings to economic policy.

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And here is the Robert Novak article:

What Is a 'Loophole'?

By Robert D. Novak

October 2, 2008

WASHINGTON, D.C. -- How would Barack Obama pay for the $800 billion that John McCain claimed in the first presidential debate Sept. 26 in Oxford, Miss., that his Democratic opponent would spend if he were elected president? Obama replied, by "closing tax loopholes."

Obama was no more specific in the debate, and tax experts doubt that structural changes without increasing taxes can raise anything close to that amount of money.

My office asked the Obama campaign for the details, and it responded with a 19-page single-spaced paper on the candidate's "tax plans."

In fact, there was precious little about tax policy in the paper, which amounted to a repeat of Democratic campaign oratory that can be heard in 30-second speeches before both houses of Congress daily on C-SPAN.

Obama has made clear that he would try to roll back President Bush's tax cuts, but that does not come under the definition of a "loophole." A loophole consists of a conniving tax attorney discovering a weakness in the Internal Revenue Code or such a weakness intentionally legislated by Congress under the instigation of crafty lobbyists. The only specific tax legislation contained in Obama's paper would raise the capital gains rate for most shareholders, restore taxation on dividend income to pre-Bush standards and restore the full estate tax.

These were not loopholes but presidential proposals enacted by Congress. The Obama paper paints a picture of lobbyists running wild on Capitol Hill but neglects to assess the impact on the economy during the current financial crisis of taking a serious strike against the stockholding public.

Obama's dividends and capital gains proposals appear to be a major attempt at redistribution of income rather than a serious attempt to pay for the spending that he has proposed.

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To find out more about Robert D. Novak and read his past columns, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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